The Trade and Welfare Impacts of the U.S. Retaliatory Tariff on EU Olive Oil

A. Malek Hammami, John C. Beghin
August 2020  [20-WP 609]

We investigate the welfare and trade impacts of U.S. retaliatory tariffs from the Airbus WTO dispute on EU olive oil, using a calibrated multi-market partial-equilibrium displacement model. The model accounts for four differentiated types of retail olive oil in the U.S. market. U.S. retailer-blenders source olive oil in eight foreign markets and domestically and for two qualities of oil (virgin, other), and in two shipping container types (non-bulk, bulk). We consider two main scenarios: A 100% tariff on all EU olive oils as initially announced by the USTR, and the actual and final 25% tariff on non-bulk Spanish olive oil. The first scenario leads to significant loss of welfare for U.S. consumers of $924 million, much reduced EU olive oil exports to the United States ($354 million), and increased imports from non-EU sources ($90 million). The second scenario has much more muted effects, with mitigated welfare losses for U.S. consumers ($55 million), strong decreases of Spanish olive oil exports shipped in smaller containers, much larger exports of bulk Spanish olive oil and other olive oils. Aggregate EU exports to the United States are slightly lower given the substantial trade diversion induced by the targeted tariff. We discuss the political economy of the contrasting initial announcement and limited implemented retaliation.

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